CATCo listed fund NAV’s continue rise, but shares priced far below

On a net asset value (NAV) basis, the CATCo Reinsurance Opportunities Fund continued to deliver positive NAV returns in July, but at the same time the share price continues to languish, as much as 135% below their net asset value in the case of one class.

Of course, the CATCo Reinsurance Opportunities Fund is now being wound down and run-off, along with the other operations of retrocessional reinsurance focused investment manager Markel CATCo Investment Management.

The process to wind down the fund has begun, with as much as $43.4 million set to be returned to investors through share buybacks in the coming weeks as the process begins.

Parent Markel Corporation is set to launch a new retrocessional reinsurance insurance-linked securities (ILS) fund platform later this year, while Markel CATCo Investment Management is fully wound down.

Despite the impacts of catastrophe losses and loss creep, the investors in the listed fund continue to benefit from positive premium flow that is driving decent monthly NAV returns, the latest being 0.7% for the Ordinary share class and 0.8% for the C shares.

The monthly NAV’s reflect the fact that positive premiums continue to accumulate, but at the same time the fund shares continues to be priced well below their net asset values.

The latest NAV’s are $0.2764 for the Ordinary shares and $0.517 for the C shares.

But the latest share prices on the London Stock Exchange are $0.14 and $0.22 for the C Shares.

So that means the Ordinary shares are priced 97% below net asset value and the C shares a massive 135% below NAV.

These listed reinsurance linked investment strategies, such as the CATCo Reinsurance Opportunities Fund, have always been discounted below their NAV’s.

It’s one of the issues that has seen some of the listed strategies struggle, especially if they also struggled to gain scale.

The main reason for this has always been cited as a lack of liquidity in the shares and in fact liquidity in these shares has been higher since they became distressed.

Investors will not achieve the NAV value for their shares in the upcoming redemption, ranges have been set of between 10 cents and 22.5 cents per Ordinary Share, or between 17 cents and 35 cents per C Share.

But while the discount continues to be so steep it can be expected that speculators will continue to be attracted to the stock.

At the same time holders will be pleased to see the positive further NAV returns from July, as these will likely help to push the final redemption values that little bit higher.